Dear Dave,
I have $64,800 in debt, not counting the $60,000 I still owe on the house, and I make $78,000 a year. I could sell the house for $125,000, so should I sell the house, completely wipe out the debt and move my family into an apartment to start over?
- Bart
Dear Bart,
Don’t sell the house. Selling your home to get out of debt is a last resort to avoid bankruptcy. If you had said you were unemployed, way behind on your bills and thinking about filing bankruptcy, then it might be an option. But let’s look at a few things first.
It sounds to me like you guys have been living the classic American model. The problem with the classic American model is that it doesn’t work. That model goes like this: every year I spend a little bit more than I make. I put it on credit cards, and when the balances get too high I get a debt CONsolidation loan. When I don’t like that loan anymore, I go get another one. What happens is that every few years you think you’ve borrowed your way out of debt. But what you’ve really done is borrowed yourself into debt right up to your eyeballs!
The debt is not the problem here, Bart; it’s the symptom of living without a plan. You’ve been living on $88,000 while you were making $78,000. Now, how are you going to reverse that? You’re going to have to start living on $50,000 and pay down the debt.
If it were me, I’d look at the family and tell them we are about to become apartment dwellers if we don’t make a commitment to going crazy and getting out of debt. This means working more, putting off vacations and selling some of the stuff sitting around the house. You might even have to pick up an extra job nights or on weekends for a while.
There’s going to be some culture shock if you make these radical changes, so be prepared. Getting used to living on less than you make can be tough, especially when you’ve been doing just the opposite. Then, there’s the additional shock of having to live on even less than that, because you’ve got to pay back the mistakes you made.
Good luck, Bart!
- Dave
________________________________________________
Dave Ramsey is a nationally syndicated radio talk-show host and best-selling author. "The Dave Ramsey Show" is synicated to more than 200 radio stations nationwide with more that 2 million weekly listeners.
Comments
I think this is good advise. However I have another scenario where we are constanly making sacrifices to keep kids in school. Sometimes this requires short-term borrowing. I am often tempted with the idea of sending them to public school and put the rest to savings which we do not have.